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Utilizing a Trust
Trust can be a tax-effective way of providing for your dependents both while you are living and after you die.

You should know that when you create a trust, you are giving away the assets in it. Any income is taxed in the hands of the trust or its beneficiary. Trusts are of two types - those that form part of your will and come into effect when you die, and those that take effect while you are alive.

A Trust set up under a will is called a Testamentary Trust and can be used in a number of different ways including:

Spousal trusts

This type of trust may be suitable if your estate is large or complicated and your spouse lacks the necessary expertise to manage it. Spousal trusts can also be used to preserve the assets for your children in the event that your spouse remarries.

Trusts for children under 18

Rather than having your children receive their inheritance in a lump sum when they reach 18, you can space it out over several years. You can also give the trustee discretion to release funds in advance for a child's schooling.

Trusts for dependents with special needs

Trusts can be set up to provide lifetime income for dependents who are mentally or physically handicapped.

Living Trusts

Living trusts can be put to effective use in a number of situations including:
  • Second marriages

With a living trust, you can provide for your current spouse during his or her lifetime, after which the money passes to the children from your first marriage.

  • Supporting children, dependent parents, or children who are mentally or physically handicapped

Rather than using after-tax income to support adult children who return home, you can set up a living trust, the income from which is taxed in their hands - at a lower tax rate. The same strategy can be used to provide for dependent parents or children with special needs.

  • Estate freezes

Proprietors of family businesses can use a living trust to freeze the value of the business for tax purposes. In effect, you can pass the business on to your children while still maintaining some control. Future capital gains will be taxed in the hands of your children.

  • Discreetly providing for someone special to you

Bequests in wills are made public when you die, but living trusts remain confidential.

  • Providing for yourself

You may become too old or sick to manage your own affairs. You can set up a trust to care for you and your spouse during your lifetime with the remaining capital passing to your children when you die.

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